Stablecoin depegging is when a token designed to stay at $1 trades meaningfully away from it, usually below. Examples of stablecoins include fiat-backed USDT, USDC and PYUSD, crypto-backed DAI and USDS, synthetic USDe, and failed algorithmic designs like TerraUSD. Each type breaks in a different way: fiat-backed coins wobble on reserve fears, crypto-backed coins on collateral crashes, synthetic coins on exchange and funding stress, and algorithmic coins in death spirals. Most depegs last hours or days; a few are permanent. This guide groups real examples by type and walks through the causes, including the 2025 FDUSD, USDe and Stream Finance episodes.
Key takeaways
- Definition: a depeg is a sustained or sharp move away from the $1 target, in either direction.
- Examples of stablecoins by type: fiat-backed (USDT, USDC, PYUSD, FDUSD), crypto-backed (DAI, USDS), synthetic (USDe), algorithmic (UST, now defunct).
- Main causes: reserve doubt, bank-run redemptions, liquidity crunches, venue-specific order-book stress and mechanism failure.
- Most depegs recover when backing is verified; coins with little real collateral can go to near zero.
- Regulation is tightening: the US GENIUS Act (signed 18 July 2025) will require payment stablecoins to hold cash-like reserves by 18 January 2027 at the latest.
Examples of stablecoins and how they hold $1
| Type | Examples | What backs $1 | Typical depeg trigger |
|---|---|---|---|
| Fiat-backed | USDT, USDC, PYUSD, FDUSD, USD1, RLUSD | Bank deposits and short-term Treasuries held by the issuer | Doubt about reserves or the banks holding them |
| Crypto-collateralized | DAI, USDS, GHO, LUSD | More crypto (and in Sky’s case real-world assets) locked than tokens issued | Fast collateral crashes that outrun liquidations |
| Synthetic / delta-hedged | USDe | Crypto collateral offset by short perpetual futures | Exchange stress, negative funding, thin order books |
| Yield or strategy-backed | xUSD (Stream Finance, failed 2025), deUSD (Elixir, wound down 2025) | Deposits deployed into trading or lending strategies | Strategy losses, opaque leverage |
| Algorithmic | TerraUSD (UST), IRON (Iron Finance) | A companion token and arbitrage incentives, little hard collateral | Loss of confidence leading to a death spiral |
For a fuller ranking by size and use case, see our list of the best stablecoins, and for design basics our stablecoin guide.
What “the peg” actually means
The peg is the value a stablecoin promises to track, almost always one US dollar. It holds because of arbitrage: if a token trades at $0.99 and someone can redeem it for $1, they buy and redeem until the gap closes; if it trades at $1.01, authorized parties mint new tokens at $1 and sell them. A depeg happens when that loop stops working, because people doubt the $1 is there, because redemption is slow or restricted, or because a particular market runs out of buyers.
Why stablecoins lose their peg
1. Reserve doubt
Fiat-backed coins depend on reserves that exist, are liquid and can be reached. When a reserve bank fails, an attestation is late, or a public figure alleges a hole in the books, holders sell first and ask questions later. The peg returns if the issuer proves the reserves and keeps redeeming.
2. Bank-run dynamics
Even a fully backed coin can slip if everyone redeems at once. Treasury bills take time to sell, banking rails close on weekends, and direct redemption is often limited to large, verified customers. Retail holders who cannot redeem can only sell, which pushes the market price down.
3. Liquidity crunch and venue-specific depegs
A stablecoin can trade at different prices on different venues. If one exchange’s order book thins during a crash, its local price can collapse even while deeper markets hold. Lending and margin systems that read that one price may then liquidate users. On-chain pools behave similarly: when one side of a liquidity pool drains, the pool’s curve forces the quoted price down.
4. Algorithmic or strategy failure
Coins backed mostly by a companion token or by an active trading strategy depend on that engine working. If the companion token crashes or the strategy loses money, there is nothing underneath. These failures tend to be fast and deep, as our explainer on algorithmic stablecoins describes.
Notable real-world depegs
TerraUSD (UST) collapsing toward zero, 2022
UST relied on swapping $1 of UST for $1 of LUNA. In May 2022 large withdrawals pushed it below $1, the protocol minted enormous amounts of LUNA to defend it, LUNA’s price collapsed, and UST followed toward zero, wiping out roughly $40 billion. In December 2025 Terraform Labs founder Do Kwon was sentenced to 15 years in US prison after pleading guilty to fraud.
Another depeg worth studying is USDN on Waves; what happened to Waves after the USDN depeg covers the Vires freeze, the later delistings and where WAVES trades now.
USDC dipping to about $0.88 during the SVB scare, March 2023
About $3.3 billion of Circle’s reserves sat at Silicon Valley Bank when it failed on a Friday. With banks closed for the weekend, holders sold and USDC fell to around $0.88. Once US authorities guaranteed SVB deposits, redemptions resumed and USDC returned to $1 within days: a pure confidence shock, not insolvency.
FDUSD falling to about $0.87, April 2025
On 2 April 2025 Justin Sun publicly claimed First Digital Trust could not meet redemptions. First Digital USD dropped to roughly $0.87 within hours. First Digital denied the claim the same day, said FDUSD was fully backed and promised legal action, and the price drifted back toward $1 over the following days. It is a textbook reserve-doubt depeg triggered by allegations rather than a confirmed shortfall.
USDe on Binance, October 2025
During the market crash of 10 October 2025, Ethena’s USDe traded as low as about $0.65 on Binance for roughly 90 minutes, while staying close to $1 on deeper on-chain venues such as Curve. Binance paid about $283 million in compensation to affected users. Analysts disagreed on whether the exchange’s pricing oracle or USDe’s design was more to blame; either way, it showed how a venue-specific depeg can trigger real liquidations.
Stream Finance xUSD and Elixir deUSD, November 2025
On 4 November 2025 Stream Finance said an external fund manager had lost about $93 million of user assets and suspended withdrawals. Its xUSD token fell by around three-quarters or more within days. Elixir, which had lent heavily to Stream, announced it would sunset its deUSD stablecoin, which then traded at about 1.5 cents. Both were yield-strategy dollars rather than reserve-backed ones, and their failure came from leverage and opaque counterparties.
Smaller and brief depegs
Crypto-backed and pool-dependent coins regularly drift to $0.97 to $0.99 during volatile sessions, then return as arbitrageurs step in. Upside depegs to $1.01 or more also happen when demand spikes or minting is paused. These are normal and usually resolve within hours.
How a peg normally repairs itself
Arbitrage does the repair work. If a reserve-backed coin trades at $0.97 while the issuer still redeems at $1, traders buy the discount and redeem, removing cheap supply until the price recovers. The wider and more reliable the redemption window, the faster this happens, which is why weekends and paused redemptions make depegs worse. For coins without a redemption desk, market makers and pools perform the same role, but only if they trust the backing.
Warning signs a depeg may be serious
- Redemptions paused or gated. If 1:1 redemption stops, arbitrage cannot close the gap.
- Unverifiable reserves. Missing attestations, vague “strategy” backing or undisclosed fund managers.
- Companion-token collapse. In algorithmic designs, a falling sister token signals a spiral.
- Leverage loops. When the same stablecoin is lent, re-borrowed and redeposited across protocols, one loss can cascade, as in the Stream and Elixir episode.
- Widening, not narrowing, discounts over hours or days.
Depegging above $1
Stablecoins can trade above $1 when demand surges faster than new tokens are minted, or when an issuer pauses minting. These upside depegs usually reflect demand rather than fear, but they still show arbitrage is temporarily jammed.
How holders can manage depeg risk
- Know which type you hold. Use the table above; a yield-strategy dollar is not the same risk as a Treasury-backed one.
- Prefer transparent reserves with regular attestations and real redemption rights.
- Diversify across issuers so one problem does not hit all your cash.
- Watch the venue, not just the token. Collateral on an exchange that prices stablecoins from its own thin order book can be liquidated during a local depeg.
- Be skeptical of high, steady yields on a “dollar.” Ask what generates them and who is borrowing.
Our broader take on whether stablecoins are safe covers freezes, regulation and custody, and the stablecoin hub links every related guide.
FAQ
What are some examples of stablecoins?
Fiat-backed examples include Tether (USDT), USD Coin (USDC), PayPal USD (PYUSD) and First Digital USD (FDUSD). Crypto-backed examples are DAI and Sky’s USDS. Ethena’s USDe is a synthetic dollar hedged with futures. TerraUSD (UST) was the best-known algorithmic stablecoin before it collapsed in 2022. Each type maintains its peg differently and fails differently.
Does a depegged stablecoin always recover?
No. Fiat-backed coins that depeg on a confidence shock, such as USDC in March 2023 or FDUSD in April 2025, usually return to $1 once reserves are confirmed. Coins with little real backing, such as UST in 2022 or strategy-backed xUSD in 2025, can fail permanently. The backing model is the best single predictor of recovery.
Is a small depeg to $0.99 something to worry about?
Usually not on its own. Short dips to $0.97 to $0.99 during volatile markets or pool imbalances are common and tend to fade within hours. Worry when the discount keeps widening, redemptions are paused, reserves cannot be verified, or the stablecoin is part of a leveraged lending loop across several protocols.
Which stablecoins are least likely to depeg?
Coins backed by cash and short-term Treasuries with frequent attestations, broad redemption access and deep liquidity have the strongest records, though USDC shows they are not immune. Well-run overcollateralized coins are generally next. Algorithmic and yield-strategy dollars carry the highest structural risk. “Least likely” still is not “never,” so diversify.
Crypto is volatile and risky; this is education, not financial advice. Do your own research.
